NERC Lowers Fixed Charge for Electricity Consumers

1. In its mission to improve service delivery to consumers, the Nigerian Electricity Regulatory Commission (NERC) on Friday, May 21 2014, approved the result of the minor review of the Multi Year Tariff Order (MYTO).

2. The major outcome and highlight of the review is indeed great news for consumers. Consumers have complained and agitated severally about Fixed Charge. NERC has listened attentively. And now consumers will pay a lower Fixed Charge.

3. With effect from June 1 2014, Nigerians will begin to pay a drastically lower monthly Fixed Charge viz:

Benin Disco - Fixed Charge reduced by 50% from N1,500 to N750.

Kaduna Disco – Fixed Charge reduced by 39% from N1,280.00 to N781.13.

Abuja Disco – Fixed Charge reduced by 29% from N985.92 to N702.11k.

Enugu Disco – Fixed Charge reduced by 26% from N874.50 to N650.

Eko – Fixed Charge reduced by 34% from N1,125 to N750.

Jos - Fixed Charge reduced by 34% from N1,162.50 to N775.

Kano - Fixed charge reduced by 25% from 889.50 to 669.90.

Yola - Fixed Charge reduced by 40% from N1250 to N750.

Port-Harcourt - Fixed Charge reduced by 33% from 1050 to N700.

Ikeja - Fixed Charge reduced by 17% from N899.50 to N750.

Ibadan - Fixed Charge reduced by 20% from N781.13 to N624.95.

4. This drastic reduction is one of many positive actions that NERC has taken in recent times in its effort to be much more responsive to the needs of Nigerian consumers while ensuring that the industry is strengthened for better service delivery. A few of those positive actions are:

The recent abolishment of Meter Maintenance Fee for all consumer classes.

The total removal and elimination of Fixed Monthly Charge for the consumer class with the highest population of Nigerians – the R1 consumer class (The R1 class are the lowest-income consumers, aka, the “masses”)

The recent NERC Order which stipulates that any consumer that has not received continuous or cumulative electricity supply for a period of 15 days in a month will NOT pay the Fixed Monthly Charge. This Order took effect exactly 30 days ago on May 1, 2014.

5. Our commitment and job as Regulator is to ensure that Nigerian electricity consumers have access to adequate and reliable electricity at a reasonable price. To achieve this, NERC has to delicately balance the dynamics between consumers (who naturally tend towards wanting to pay less for more electricity), and the privatized Electricity Industry (which needs to be financially viable in order to provide the consumer with more affordable electricity). As you may imagine, this is not an easy balancing act. But NERC is up to the task.

6. The tariff paid by a consumer is made up of the Fixed Charge and the Energy Charge. The Fixed Charge recovers the capital cost and fixed operations cost (like maintenance) of poles, cables, transformers, etc. (By the way, the Fixed Charge is universal best practice and is not peculiar to Nigeria). The Energy Charge is a function of consumption. It is paid by consumers only when electricity is consumed and is intended to recover the costs of the electricity and operations.

7. Nigerians complained about Fixed Charge. NERC listened and delivered a comprehensive 3-prong response. We eliminated Fixed Charge for R1 consumers, we drastically cut Fixed Charge for other consumers, and we ensured that any consumer who does not receive electricity supply for half a month will NOT pay Fixed Charge for that month. Our thinking is that this comprehensive response will help provide DISCOs with the incentives to improve supply to consumers. This is because with the drastic reduction of Fixed Charges, they will be moved to improve supply so as to be able to recoup their investments through Energy Charge – which depends on the consumer having electricity to consume.

8. To balance this therefore, and to bring the best out of our Electricity Industry, this minor review also introduces a slight increase in energy charge ONLY for R2 consumers and ONLY in certain DISCOs. This slight increase will create an additional layer of incentive to the DISCOs to provide even more electricity to consumers – as consumers have to have consumed electricity before paying the DISCO. After all, you cannot pay for electricity you didn’t receive. As can be seen therefore, our goal is clear and simple: To increase supply of electricity.

It is so slight that the removal and reduction of Fixed Charge compensates for it. Therefore, many of those affected will not even be paying more for electricity at the end of the day.

It is NOT for everyone. It is only for the R2 class of consumers. That means that it does not IN ANY WAY affect the Nigerian masses in the R1 class

It is not even for all R2 consumers. It is ONLY for R2 consumers in certain areas. (In fact, for Ikeja Disco, Energy Charge and Fixed Charge reduced). So in reality, it affects only very few Nigerians.

It will help increase supply of electricity

You will pay only what you consume. So it will incentivize you the consumer to be more rational about consumption even as it makes electricity more available. This in turn will free up more electricity for others to share and consume. It is a win-win for everybody.

10. NERC wants to assure all Nigerian consumers that the process that led to this minor review was not only well thought through and tested, it was also passed through the MYTO Framework which guarantees that not only is the consumer well protected, but that the industry is viable enough to in turn deliver more and affordable electricity to the consumer.

11. NERC’s commitment to regulatory due process and its determination to ensure that it regulates the sector in a manner that ensures efficiency gains for consumers have resulted in confidence of local and foreign investors to continue to invest in expanding capacity and strengthening reliability in the Nigerian electricity market. The MYTO is a critical assurance mechanism of the financial viability and regulatory certainty of the new Nigerian electricity market. It’s clear, transparent, consultative and evidence-based approach to tariff setting guarantees to investors that they will continue to recover their investments towards providing adequate and reliable electricity in Nigeria. It also assures consumers that the electricity market will be regulated effectively so that any increases in efficiency will increase access to affordable electricity.

12. Our commitment as Regulator is to not only ensure that Nigerian electricity consumers have access to adequate and reliable electricity but also to provide processes and mechanisms for effective remedies for any violations of service obligations by the service providers in the new Nigerian electricity market.